1. Meghna Foods Ltd is a statutory audit client. The audit firm accepts overall audit risk of 4%. For trade receivables it assesses inherent risk at 90% and, after satisfactory tests of controls, control risk at 40%. Using the audit risk model from ISA 200, what is the maximum detection risk and what does it imply for the substantive procedures?

A) 4.4%; inherent risk alone drives the planning, so control tests make no difference to the extent of substantive work
B) 1.4%; detection risk is audit risk multiplied by the risk of material misstatement, so substantive work must be more extensive
C) 11.1%; tested controls lower the risk of material misstatement, so substantive work can be less extensive than at 4.4%
D) 10.0%; detection risk is audit risk divided by control risk, so inherent risk need not be considered in planning substantive work

Correct: C difficult ISA 200

Under ISA 200 audit risk is the product of the risk of material misstatement (inherent risk x control risk) and detection risk. Risk of material misstatement is 0.90 x 0.40 = 36%, so detection risk = 4% / 36% = 11.1%. Without reliance on controls (control risk 100%) it would be 4% / 90% = 4.4%, so the higher 11.1% permits less extensive substantive work. Dividing by inherent risk only ignores the controls, multiplying gives 1.4%, and dividing by control risk alone omits inherent risk.

2. Rahman & Co performs a limited assurance engagement on Padma Textiles Ltd's Scope 1 greenhouse gas statement of 12,400 tonnes, applying ISAE 3000 and ISAE 3410. Materiality is set at 5% of the reported total. The practitioner finds two understatements, 410 tonnes (unmetered generator fuel) and 240 tonnes (wrong boiler emission factor). Management declines to correct either. What conclusion should be issued?

A) An adverse conclusion, because management refused to correct and the misstatements together exceed materiality of 620 tonnes
B) A qualified conclusion, because uncorrected misstatements total 650 tonnes, above materiality of 620 tonnes, but are not pervasive
C) An unmodified conclusion with an other matter paragraph, because 650 tonnes is only 5.2% of the reported total and not pervasive
D) An unmodified conclusion, because each misstatement is below materiality of 620 tonnes and limited assurance accepts lower precision

Correct: B difficult ISAE 3000 (Revised)

Materiality is 5% x 12,400 = 620 tonnes. Misstatements are evaluated in aggregate, 410 + 240 = 650 tonnes, which exceeds materiality, so they are material even though each is individually smaller. Limited assurance changes the nature and extent of procedures, not the need to modify a conclusion for material misstatement. At about 5.2% of the total the effect is material but not pervasive, so the conclusion is qualified (except for), not adverse, and an other matter paragraph cannot substitute for modification.

3. Rupsha Agro, a partnership firm with no legal audit requirement, has a CU 50 million bank loan. The bank offers a 0.6% reduction in the annual interest rate if reasonable assurance is given on the financial statements by a practitioner. The audit fee would be CU 240,000. Which statement about the proposal is correct?

A) Net cost of CU 210,000 a year (saving CU 30,000 less fee); the bank's reliance on the report makes the engagement a limited assurance one
B) Net benefit of CU 540,000 a year (saving CU 300,000 plus fee); the bank is not the addressee, so its confidence is not relevant to value
C) Net benefit of CU 60,000 a year (saving CU 300,000 less fee); but the engagement would be worthless as only the partners are intended users
D) Net benefit of CU 60,000 a year (saving CU 300,000 less fee); the bank is not the addressee but its added confidence is still a benefit

Correct: D difficult IAASB Framework for Assurance Engagements

A 0.6% rate cut on CU 50 million saves 50,000,000 x 0.006 = CU 300,000, so after the CU 240,000 fee the net benefit is CU 60,000. A recognised benefit of assurance is that a report addressed to the owners also enhances the credibility of the information for others such as lenders. The 0.06% error gives a spurious net cost, and adding the fee overstates the benefit. The bank being a non-addressee does not remove the benefit, and the level of assurance depends on the evidence and conclusion form, not on who relies on it.

4. The parent board of Bengal Power Ltd engages Alam & Co to give assurance to lenders on a fuel consumption statement. The statement is measured and prepared by the management of Bengal Power Ltd's operating subsidiary, against criteria the lenders have approved. Alam & Co does no measurement itself. Which description of the engagement is correct under ISAE 3000?

A) Subsidiary management is the responsible party and measurer, the parent board the engaging party; it is a direct engagement because lenders approved criteria
B) Alam & Co is the responsible party as it concludes on the statement, the lenders are the measurer, and it is an attestation engagement
C) Subsidiary management is the responsible party and measurer, the parent board the engaging party, lenders the users; it is an attestation engagement
D) The parent board is the responsible party because it pays the fee, Alam & Co is the measurer, and it is a direct engagement for lenders

Correct: C difficult ISAE 3000 (Revised)

In an attestation engagement a party other than the practitioner measures or evaluates the subject matter against criteria, and the practitioner concludes on the resulting information. Here subsidiary management measures and prepares, so it is the responsible party and measurer, while the parent board that appoints the practitioner is the engaging party and lenders are intended users. Paying the fee does not make the parent the responsible party. It would be a direct engagement only if Alam & Co itself measured the fuel consumption.

5. Karnaphuli Traders Ltd's bank asks Hoque & Co to agree 25 receivable balances to invoices and to obtain customer confirmations for 10 of them, then to report what was found. The bank will draw its own conclusions from the results. Which statement about the engagement is correct?

A) It is an agreed-upon procedures engagement, not assurance; the report states factual findings with no opinion, as the bank evaluates them
B) It is a reasonable assurance engagement, because customer confirmations are external evidence and the report gives a positive-form opinion
C) It is a compilation engagement, because the practitioner presents balances supplied by management and reports no findings or conclusion
D) It is a limited assurance engagement, because the procedures are fewer than an audit and the report gives a negative-form conclusion

Correct: A difficult ISRS 4400 (Revised)

Where a practitioner performs procedures agreed with the engaging party and reports only factual findings, leaving users to draw their own conclusions, it is an agreed-upon procedures engagement, which is not an assurance engagement. No conclusion is expressed, so neither negative-form (limited) nor positive-form (reasonable) wording applies, however external the evidence. A compilation engagement helps management prepare financial information and involves no testing of balances, which is not the case here.

6. A lender requires interim financial statements of Surma Pharma Ltd to be reviewed rather than audited, to save cost. The practitioner will perform a review under ISRE 2400 (Revised). Which conclusion and procedures are appropriate for this limited assurance engagement?

A) A positive-form opinion that the statements give a true and fair view, based mainly on enquiry and analytical procedures alone, at lower cost
B) A negative-form conclusion that nothing has come to attention indicating a departure, based mainly on enquiry and analytical procedures
C) A negative-form conclusion that nothing has come to attention, based on the same extent of testing and confirmation as in an audit
D) A positive-form opinion that the statements are free of misstatement, given the review report discloses that the level of work was lower

Correct: B difficult ISRE 2400 (Revised)

A limited assurance engagement, such as a review, gives a meaningful but lower level of assurance, expressed negatively as nothing having come to the practitioner's attention. The evidence comes mainly from enquiry and analytical procedures, with less testing than an audit. Positive-form wording is reserved for reasonable assurance, so disclosing the lower work effort cannot justify it. Applying audit-level testing would defeat the cost purpose, since a lower evidence level is what distinguishes limited from reasonable assurance.

7. Padma Textiles Ltd asks for assurance on its published Community Impact Index, scored using the criterion 'significant contribution to local wellbeing' with no defined measurement basis. The practitioner agrees the wording is clear, addresses what stakeholders need and shows no bias, but believes two qualified practitioners could score the same activities differently. Which characteristic of suitable criteria is lacking?

A) Reliability, because the criteria do not permit consistent measurement by similarly qualified practitioners in similar circumstances
B) Neutrality, because the criteria allow management to choose a favourable score and so produce information that is biased in its favour
C) Understandability, because the criteria are expressed so loosely that intended users cannot follow how the score was reached
D) Relevance, because the criteria do not yield information that helps the decision-making of the intended users of the published index

Correct: A difficult ISAE 3000 (Revised)

ISAE 3000 expects suitable criteria to be relevant, complete, reliable, neutral and understandable. Reliable criteria permit reasonably consistent measurement or evaluation of the subject matter when used by similarly qualified practitioners in similar circumstances. A criterion with no measurement basis fails on that ground. The scenario states that the wording is clear, addresses stakeholder needs and shows no bias, which removes understandability, relevance and neutrality as the deficiency.

8. Karim & Co issued an unmodified opinion on Rupali Garments Ltd, whose materiality was CU 1.5 million. Nine months later a whistleblower shows revenue was overstated by CU 6.2 million through collusion between the sales director and two customers, using forged confirmations and side letters. The audit file shows ISA-compliant planning and procedures. Shareholders say the audit failed. What is the correct view?

A) The audit did not fail, because the fraud was committed by the entity's directors, so the auditor has no duty on fraud
B) The audit failed, because a misstatement above materiality that goes undetected means that reasonable assurance was not obtained
C) Non-detection alone does not show non-compliance; collusion and forgery are inherent limitations of a properly performed audit
D) The audit failed, because the ISAs require the auditor to guarantee detection of any fraud involving senior management

Correct: C difficult ISA 200

ISA 200 recognises that an audit cannot give absolute assurance because of inherent limitations such as testing, judgement, and fraud involving collusion or forged documents, which is harder to detect than error. Later discovery of a material misstatement does not by itself show that the audit was not planned and performed in accordance with ISAs. The auditor does have fraud responsibilities, including professional scepticism, so denying any responsibility is wrong, but reasonable assurance is not a guarantee of detection.

9. The directors of Jamuna Steel Ltd tell the bank that audited accounts are accurate to the last taka. Audit materiality is 1% of revenue of CU 240 million. The auditor holds unadjusted misstatements of CU 0.9 million that management declined to correct. All other work is satisfactory. Which statement is correct about the opinion and the auditor's duties?

A) Qualified opinion is required because management refused to correct known misstatements, even though they are under materiality of CU 2.4 million
B) Unmodified opinion is appropriate as CU 0.9 million is under materiality of CU 2.4 million, but the misstatements must still be communicated to those charged with governance
C) Unmodified opinion is inappropriate because reasonable assurance means the statements are accurate, so all known misstatements must be corrected
D) Unmodified opinion is appropriate as CU 0.9 million is under materiality of CU 2.4 million, so nothing need be reported to those charged with governance

Correct: B difficult ISA 200

Materiality is 1% x CU 240 million = CU 2.4 million. Reasonable assurance is a high but not absolute level, so the opinion says the statements are free of material misstatement, not that they are accurate to the last taka; that misunderstanding is part of the expectations gap. Uncorrected misstatements of CU 0.9 million are below materiality, so no modification is needed. ISA 450 nevertheless requires the auditor to communicate uncorrected misstatements to those charged with governance, so omitting communication is wrong.

10. In the audit of Teesta Distributors Ltd, the ERP-generated receivables ageing report shows CU 8.40 million. The auditor's recalculation from the invoice file gives CU 9.10 million. Overall materiality is CU 1.2 million and performance materiality CU 0.5 million. Management says the system output is always right. What is the appropriate response?

A) Investigate the CU 0.70 million difference and test the report's accuracy and completeness, as it exceeds performance materiality
B) Ignore the difference, because CU 0.70 million is below overall materiality of CU 1.2 million and cannot affect the opinion
C) Accept management's assurance, because the ERP is a reliable source and an explanation from management is adequate corroboration
D) Accept the report, because system-generated output is more reliable than manual recalculation and the difference is under 10%

Correct: A complex ISA 200

ISA 200 requires scepticism, including alertness to evidence that contradicts other evidence and to the reliability of information used as evidence. Automation bias is the tendency to favour automated output, which may be misconfigured or untested. The CU 0.70 million difference exceeds performance materiality of CU 0.5 million, so it must be investigated and the report's inputs and logic tested. Comparing with overall materiality is the wrong benchmark for an account-level test, and management's assertion alone is not sufficient appropriate evidence.

11. The audit senior on Sundarban Tea Ltd wants to leave out one relevant requirement of an ISA because it would take two extra days, and says the ISA's application material only 'explains' the standard. She still wants the report to state the audit was conducted in accordance with ISAs. Which statement is correct?

A) The requirement can be omitted if the engagement partner approves it, as the objectives of the ISA matter more than its detailed requirements
B) The requirement can be omitted if the file records that overall evidence is sufficient and the report states which procedure was left out
C) Application material carries the same weight as requirements, so every example in it must be performed in every audit without exception
D) It applies unless conditional and not triggered; time pressure is not an exceptional circumstance, and departure needs alternative procedures

Correct: D difficult ISA 200

ISA 200 requires the auditor to comply with every requirement of an ISA relevant to the audit, unless the requirement is conditional and the condition does not exist. Only in exceptional circumstances may the auditor depart, and then must perform alternative procedures that achieve the aim of the requirement; cost or time is not such a circumstance. Application material explains how requirements apply and must be understood, but examples need not all be performed. Approval by the partner or a file note cannot override the requirement.

12. The board of Karatoa Packaging Ltd proposes Sultana Hossain & Co, an ICAB member firm, as statutory auditor. One partner of the firm, Ms Sultana, is also a salaried finance officer of Karatoa Packaging Ltd. The firm offers to exclude her from the audit team. Which statement is correct?

A) The firm is eligible under the Companies Act 1994 if Ms Sultana is excluded from the audit team, as that removes the self-review threat
B) The firm is eligible under the Companies Act 1994 if shareholders approve the appointment at the annual general meeting after full disclosure
C) The firm is ineligible under the Companies Act 1994 because a partner is an employee of the company, so excluding her from the team cannot cure it
D) The firm is eligible under the Companies Act 1994 because ICAB membership qualifies it, and eligibility is not affected by a partner's other roles

Correct: C difficult Companies Act 1994

The Companies Act 1994 makes a person ineligible as company auditor if they are an officer or employee of the company, or a partner or employee of such a person. Ms Sultana is an employee and the firm's partner, so the firm is ineligible. This is a legal bar, not an ethical threat that safeguards can reduce, and shareholder approval cannot waive it. ICAB membership is only one condition, and its ethical rules are usually stricter than the Act.

13. Karnaphuli Seafood Ltd discharges untreated effluent that pollutes a river used by fishing communities. Falling river-water availability and rising salinity also threaten its hatchery output. The board compares an ISSB-type enterprise value approach with a double materiality approach. Which statement is correct?

A) Both items are dependencies because both affect the company; ESG reporting covers all effects on the planet, whether or not they affect value
B) The effluent is an impact and the water risk a dependency; enterprise value reporting needs every impact on society, double materiality only value items
C) The effluent is a dependency and the water risk an impact; enterprise value reporting needs only items affecting value, double materiality all impacts
D) The effluent is an impact and the water risk a dependency; enterprise value reporting needs only items affecting value, double materiality all impacts

Correct: D difficult IFRS S1 and IFRS S2

Sustainability impacts are how the business affects the environment and society, as the effluent does; dependencies are ESG issues that affect the organisation's ability to create value, as the water and salinity risk does. An ISSB approach under IFRS S1 and S2 focuses on information affecting enterprise value, whereas double materiality also requires impact reporting even where enterprise value is not affected. ESG, unlike sustainability in its wide sense, is viewed through the lens of enterprise value, so it does not cover every effect on the planet.

14. Meghna Power Ltd owns a coal-fired plant with a carrying amount of CU 18.6 billion. The government has announced a phase-out for plants of its type, and Bangladesh has no mandatory climate reporting framework applying to the company, which publishes no sustainability report. What should the auditor of the financial statements do?

A) Disregard it, because climate matters are relevant to the audit only when the entity publishes a sustainability report under a framework
B) Consider the transition risk in assessing risks of material misstatement, such as impairment, useful lives and disclosures
C) Add an emphasis of matter paragraph, because transition risk must be reported in every audit report without assessing misstatement risk
D) Treat it as a separate ISAE 3000 engagement, because climate risk is outside the scope of an audit of financial statements under ISAs

Correct: B difficult ISA 315 (Revised 2019)

The ISAs apply to climate-related risks as to any other risk that could cause material misstatement. A phase-out policy announcement can affect impairment testing, useful lives, going concern assessment and disclosures for the plant, so the auditor must consider it in identifying and assessing risks of material misstatement, as the IAASB practice alert explains. The absence of a mandatory reporting framework or a sustainability report does not remove the financial statement risk, and an emphasis of matter paragraph is not a substitute for the assessment.

15. Dhaka Dairy Ltd engaged Faruk & Co to give reasonable assurance on its water usage statement. Midway, management denies access to wastewater meter records, although no law restricts access, and asks to change the engagement to limited assurance so that the report will not be modified. What should the practitioner do?

A) Reject the change as unjustified, since a management restriction is no reasonable justification; modify the conclusion or withdraw if still denied
B) Continue as reasonable assurance and issue an unmodified conclusion, because the other evidence obtained is enough to support a positive form
C) Agree the change if the report discloses the original request, because limited assurance is just a lower level and needs less evidence
D) Agree the change, because the level of assurance is a matter of engagement terms and a limited assurance report then needs no modification

Correct: A complex ISAE 3000 (Revised)

ISAE 3000 requires a practitioner asked to move to a lower level of assurance to decide whether there is reasonable justification, for example a change in circumstances or a misunderstanding of the original terms. A restriction imposed by management is not one, because the scope limitation would simply be hidden. If access remains denied, a modified conclusion (qualified or disclaimer, depending on pervasiveness) or withdrawal follows. Issuing an unmodified positive conclusion is wrong, because evidence for reasonable assurance is lacking.

16. In planning the audit of Bogura Feed Ltd, the auditor identifies that the expected credit loss allowance on receivables relies on a complex model, involves high estimation uncertainty and is exposed to management bias. Which statement about assessing inherent risk under ISA 315 (Revised 2019) is correct?

A) Inherent risk is assessed after taking account of internal controls, so a strong control environment lowers it to a low level
B) Inherent risk factors apply only to fraud risks, so estimation uncertainty is a matter for the assessment of control risk
C) Inherent risk is assessed separately from control risk, using inherent risk factors; more factors present means higher risk
D) Inherent risk and control risk are combined into one risk, so a separate assessment of inherent risk is not required

Correct: C difficult ISA 315 (Revised 2019)

ISA 315 (Revised 2019) requires the auditor to assess inherent risk and control risk separately at the assertion level. Inherent risk is assessed by considering inherent risk factors such as complexity, subjectivity, uncertainty, change and susceptibility to misstatement due to management bias or fraud. The combination of these factors places the risk on a spectrum of inherent risk. Controls affect control risk, not inherent risk, and the factors are not limited to fraud, so the other statements are incorrect.

17. For Kushiyara Textiles Ltd the auditor accepts overall audit risk of 5% and initially assesses the risk of material misstatement for inventory at 50%. Tests of controls then reveal significant deficiencies and the risk of material misstatement is reassessed at 80%. Using the audit risk model, what is the revised detection risk and its effect on substantive procedures?

A) 6.25%; detection risk falls from 10%, so substantive procedures must be more extensive
B) 10.0%; audit risk is fixed, so detection risk and the extent of substantive procedures stay unchanged
C) 4.0%; detection risk is audit risk multiplied by the risk of material misstatement, so substantive work can be less extensive
D) 16.0%; detection risk is the risk of material misstatement divided by audit risk, so substantive work can be less extensive

Correct: A difficult ISA 200

Detection risk = audit risk / risk of material misstatement. Initially 5% / 50% = 10%. After the reassessment it is 5% / 80% = 6.25%. A lower acceptable detection risk means the auditor needs more assurance from substantive procedures, so they must be more extensive or more reliable. Multiplying the two risks gives 4%, which is not the model. Dividing the other way gives 16%. Holding detection risk at 10% ignores the increased risk of material misstatement.

18. To support the existence of receivables at Chandpur Cement Ltd, the auditor examines 150 customer statements supplied by management and no external confirmations. The senior argues that the large number of items makes the evidence sufficient. Which statement is correct under ISA 200 and ISA 500?

A) Sufficiency is the measure of evidence quality, so examining more items improves its appropriateness and reliability
B) Appropriateness measures the quantity of evidence, so 150 items makes the evidence appropriate
C) Documents from management are as reliable as external evidence, so the quantity examined is the only matter of concern
D) Sufficiency is quantity and appropriateness is quality; more items cannot make up for weak reliability

Correct: D difficult ISA 500

Sufficiency is the measure of the quantity of audit evidence, and appropriateness is the measure of its quality, meaning its relevance and reliability. A greater quantity can reduce the effect of the risk of misstatement, but it cannot compensate for evidence of poor quality. Evidence obtained from independent external sources is generally more reliable than evidence generated by the entity, so statements supplied by management are weaker than confirmations. The reverse definitions in options A and B are wrong.

19. Dhaka Carbon Advisory is engaged by the lenders of Madhumati Cement Ltd. It installs its own meters at the plant, measures energy use itself against criteria agreed with the lenders and reports its conclusion on the measured energy use. Which description is correct under ISAE 3000 (Revised)?

A) It is an attestation engagement, because the practitioner concludes and the company's own statement is the information reported on
B) It is a direct engagement, because the practitioner measures the subject matter against the criteria and reports on the outcome
C) It is not an assurance engagement, because a practitioner who measures the subject matter itself cannot be independent
D) It is an agreed-upon procedures engagement, because the practitioner performs defined procedures and reports what it found

Correct: B difficult ISAE 3000 (Revised)

In a direct engagement the practitioner itself measures or evaluates the underlying subject matter against the criteria and reports a conclusion on the outcome. In an attestation engagement, someone else measures it and the practitioner concludes on that party's information. ISAE 3000 (Revised) covers both forms, and the practitioner must still meet independence requirements. Measuring the subject matter does not make the engagement agreed-upon procedures, because a conclusion is expressed.

20. A bank asks Rahim & Co to 'confirm that the financial statements of Teknaf Marine Ltd are correct'. Rahim & Co only helps management to prepare the statements from the accounting records and does not test the underlying records. Which statement about this compilation engagement under ISRS 4410 (Revised) is correct?

A) It provides no assurance and no opinion is expressed; the report must say the statements are not audited or reviewed
B) It provides limited assurance, because the practitioner has applied accounting expertise to the preparation of the statements
C) It provides reasonable assurance, because the practitioner has had access to all of the underlying accounting records
D) It provides a negative-form conclusion that nothing has come to attention indicating the statements are materially misstated

Correct: A difficult ISRS 4410 (Revised)

A compilation engagement under ISRS 4410 (Revised) uses accounting expertise to help management prepare financial information. The practitioner is not required to verify the information, and no assurance or opinion is expressed. The report should state this clearly so that users do not infer assurance. A negative-form conclusion belongs to a review and a positive-form opinion to an audit, so the bank's wording cannot be met by a compilation.

21. A lender asks Hoque & Co to perform agreed-upon procedures on the inventory count records of Gazipur Plastics Ltd. Hoque & Co is also the company's tax adviser. What is the position under ISRS 4400 (Revised)?

A) The firm must decline, because ISRS 4400 (Revised) requires the practitioner to be independent of the entity in every case
B) The firm need not mention independence, because an agreed-upon procedures report contains only factual findings
C) The firm must express a negative-form conclusion on its independence, because the lender will rely on the findings
D) Independence is not required unless terms or law require it, but the report must state the firm's position for users

Correct: D difficult ISRS 4400 (Revised)

ISRS 4400 (Revised) does not make independence a requirement for an agreed-upon procedures engagement, although the engagement terms or relevant law may require it. Because users will read the findings, the report includes a statement about whether the practitioner is independent, or is not required to be, so they can take it into account. The engagement is not an assurance engagement, so no conclusion of any form is given on independence.

22. Padma Agro Ltd asks Alam & Co to report on its three-year cash flow forecast, which the bank will use for a loan decision. The forecast is based on management's assumptions. Which report is appropriate under ISAE 3400?

A) A positive-form opinion that the forecast results will be achieved, because management's assumptions are its best estimates
B) A disclaimer of opinion, because future events cannot be examined and so no evidence is available on a forecast
C) A negative-form statement on the assumptions, an opinion on proper preparation, and a warning that results will probably differ
D) A reasonable assurance conclusion that actual results will equal the forecast, if the assumptions are management's best estimate

Correct: C difficult ISAE 3400

Under ISAE 3400 the practitioner reports on the examination of prospective financial information. The report states, in negative form, that nothing has come to the practitioner's attention suggesting the assumptions are unreasonable. It also gives an opinion that the forecast is properly prepared on the basis of the assumptions and presented in accordance with the framework, and cautions that actual results are likely to differ from the forecast. No assurance is given that the results will be achieved.

23. Teesta Ceramics Ltd fails seven months after its audit report was signed. The report was unmodified and included no reference to going concern uncertainty. Shareholders say the auditor should have predicted the failure. Which view is correct under ISA 570 (Revised)?

A) The audit failed, because an unmodified opinion is a guarantee that the entity will remain viable for at least twelve months
B) The auditor evaluates management's going concern assessment and concludes on it; the report is no guarantee of viability
C) The auditor is responsible for preparing the going concern assessment, so the later failure shows that the assessment was wrong
D) The auditor must publish forecasts of future events, so the failure shows that required disclosure to shareholders was omitted

Correct: B difficult ISA 570 (Revised)

Under ISA 570 (Revised), management is responsible for assessing the entity's ability to continue as a going concern. The auditor obtains sufficient appropriate evidence on the appropriateness of management's use of the going concern basis and on whether a material uncertainty exists. Future events can cause failure, and the absence of a reference to uncertainty in the report is not a guarantee of viability. That misunderstanding is part of the expectations gap. Later collapse does not by itself show that the audit was deficient.

24. The finance director of Surma Tea Ltd has a twelve-year record of honest dealings with the audit firm. Near the year end, he posts several large unusual journal entries to revenue and explains that they are 'routine'. The audit senior proposes to accept the explanation because of the record. What is the correct response under ISA 200 and ISA 240?

A) Maintain professional scepticism: past experience of honesty does not remove the need to corroborate the entries with evidence
B) Accept the explanation, because ISA 240 allows reliance on management's integrity once a long record has been established
C) Accept the explanation if the engagement partner approves it, because partner approval is adequate corroboration of the entries
D) Apply scepticism only if fraud is actually suspected, so unusual entries without such a suspicion need no further work

Correct: A difficult ISA 240

ISA 200 requires the auditor to plan and perform the audit with professional scepticism, which includes being alert to unusual circumstances. ISA 240 states that the auditor's past experience of the honesty and integrity of management does not relieve the auditor of the need to maintain scepticism. Large unusual late journal entries to revenue are a classic fraud risk indicator, so the auditor should obtain corroborating evidence. Partner approval is not evidence about the entries, and scepticism is required throughout, not only once fraud is suspected.

25. Which one of the following engagements performed by a professional accountant is an assurance engagement within the meaning of ISAE 3000 (Revised)?

A) Designing and implementing a new payroll system for the management and finance team of Meghna Dairy Ltd
B) Preparing the tax computation and filing the annual income tax return and related schedules of Barishal Fisheries Ltd
C) Reporting to the lenders of Bhairab Foods Ltd a negative-form conclusion on management's covenant compliance statement
D) Compiling annual financial statements for Noakhali Salt Ltd from the accounting records provided by its management

Correct: C difficult ISAE 3000 (Revised)

An assurance engagement is one in which a practitioner aims to obtain sufficient appropriate evidence to express a conclusion that increases the confidence of intended users about the outcome of measuring a subject matter against criteria. Reviewing a covenant compliance statement and giving the lenders a conclusion meets that definition. Designing a system and preparing a tax return are advisory or compliance services, and compilation involves no conclusion, so none of them are assurance engagements.